A Refresher on Payback Method

Harvard Business

There are a variety of ways to calculate a return on investment (ROI) — net present value , internal rate of return , breakeven — but the simplest is payback period. What is payback period? Payback is by far the most common ROI method used to express the return you’re getting on an investment. ” The shorter the payback period, the better. This is the major limitation of the payback method.

Hospital Budget Systems Are Holding Back Innovation

Harvard Business

The IPU is an essential component of the value-based care model advocated by Harvard Business School’s Michael Porter. Despite a one-year payback period and a highly positive net present value (NPV) from this investment, the department will often reject the attractive opportunity. Instead, the finance office can allow the department to keep some of the savings it created, in excess of the original acquisition cost, in future year budgets.

Why We Need to Update Financial Reporting for the Digital Era

Harvard Business

In our recent HBR article , we argued that financial statements fail to capture the value created by modern digital companies. and (ii) how can digital firms improve their financial reports to communicate sources of value creation in their businesses? Business students have traditionally considered net present value, payback period, and hurdle rates as necessary tools to determine which project to select. Martin Konopka/EyeEm/Getty Images.

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